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December 17th, 2012 at 9:11 am

Trading Opportunities in Large Yen Gaps.

In line with earlier predictions, the Liberal Democratic Party easily won election in Japan. Together with its ally, the New Komeito party, the LDP controls two-thirds of the lower house. This gives it the majority needed to overrule the upper house of the parliament if needed. Combined with the office of Prime Minister, the party should be in control of financial policies, which include the matter of strong Yen. The LDP promised to embark on unlimited monetary easing with objective of inducing inflation, sparking economic growth and weakening domestic currency. The Yen responded with large gaps at the opening, losing ground versus all other majors.

These could have been exhaustion moves, like in the “buy the rumor, sell the news” saying, but from the immediate trading perspective these gaps were inviting short-term opportunities. In case of the EUR-JPY, we can see a 100+pips gap, which started to close right away. The price formed the first support at around 110.50 providing entry for a sell. After that however, the pace of this sell off declined, making for a prolonged trade. I got out at 110.20, for 30 pips gain, but the gap was eventually closed. Still, it was a relatively easy trade.

Not everything was that straight forward. A sell in the EUR-USD, discussed yesterday, did not live up to the expectation. The price formed a bearish engulfing line in early trading, giving the sell signal. Unfortunately, the volatility evaporated rather quickly and there was little downside progress. I settled for a small profit of 13 pips, short of the 30 pips sought.

The NZD-USD was a little more productive, bringing 21 pips. It was only the first of short trades in this pair and I will be looking for more in coming days. With any luck, they will be better. Expect another update on the Kiwi in the next post.

Mike K.

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